[From iSource Business, February/March 2002] Sink or swim. That may be the understatement of the year for Dumond Lowery, newly appointed director of global strategic sourcing for Dana Corp., one of the largest automotive component suppliers to vehicle manufacturers in the world.
As an 11-year veteran, Lowery is not exactly a newcomer to Dana, but he's not exactly a supply management guru, either. Why, then, is this man in charge of the buying and selling of all the materials for 300 Dana facilities in 34 countries around the world, which procures $6 billion worth of materials, repair and operations (MRO) and productive supplies?
The simple answer: he knows business processes.
In a perfect world, Dana Corp. would have begun its supply chain management initiatives by first evaluating business processes, assessing the tools available, setting return on investment (ROI) goals and selecting metrics. But, as is all too common in corporations, investing in and installing the technology was first on the list.
Now that the technology is in place, Lowery has been hand-picked to make sure that the technology delivers results. But, in order to do that, he must work backward.
iSource talked with Lowery about the strategies and pressures that drive the successful usage of e-technology. In a world where the end result, and getting there as quickly as possible, is paramount, Lowery tells us how to accomplish that with the right groundwork.
iSource: In order to successfully launch a supply chain initiative, you need to establish your ROI goals, metrics and work on your business processes first before you invest in technology. How frustrating is it to try to establish all of that in a company after the technology is purchased and implemented?
Lowery: When Dana first began this initiative, it was more about getting it started and moving forward; that was the goal: to get the tools out there. The thought process was that people would use the tools and leverage the spend to make a business case for the ROI. When I came on, I recognized that we did not have any defined business processes for our particular tools, and I found that, at times, the tool was driving the process as opposed to the process driving the tool. I was asked to put those business processes together and assist in driving the ROI more quickly. Actually, my master's thesis was on business process improvements. My role now is to take the initiatives to the next level and continue to drive value to the bottom line.
If this were utopia, the business processes would be developed first, then the people would be put in place and they would be provided with the training they need for the model they are going to use first. I don't think businesses do enough up-front strategic planning to really drive the savings.
iSource: What role does corporate culture play in adopting this kind of technology?
Lowery: Anyone who doesn't think culture plays a major role in business is being very naïve, because it does. Change management is a big part of enabling these tools within an organization. It is a different way of doing business. Some buyers feel that it's just easier to pick up the phone and call the local supplier and order what they want. But one thing they don't take into consideration is the manual processes that other disciplines experience in order to process this type of an order. In addition, these tools support a more center-led organization. Therefore, change management within highly decentralized organizations may be more of a challenge. Change management is a huge piece of this, but it is also how you should approach getting these types of initiatives deployed. It's not a dictatorial type of message, like You go do this, or else.' My particular style is to put it out there and work with people to present them with the information and show them the facts; get on their level, play on their terms, but also get them to say, Hey, I want to use this.
iSource: As a supplier to major auto manufacturers, how much pressure is there to ramp up technology spending in order to maintain relationships with automotive buyers?
Lowery: This answer is two-fold. First, in order to gain a competitive advantage, a supplier must be set apart from other suppliers by adding additional value, rather than just price. There are intangibles, like engineering special services, that a supplier can bring to the table to add value to the customer so it will become a preferred supplier. A preferred supplier adds additional value and limits or reduces the chance of having its product categorized as a commodity.
Second, when a supplier does attain that preferred-supplier status, it is necessary to bring additional value to the supply chain by eliminating waste. One method of eliminating waste is electronic communications with both customers and suppliers. With regard to the pressures from manufacturers, the responsibility falls upon the supplier. The name of the game today is cost, and if there is any particular way in which cost can be taken out, that's what companies should be focused on.
iSource: Is there a sense of anxiety on the part of suppliers to find new competitive advantages?
Lowery: Yes. I think well-defined business processes, like I spoke of before, help an organization achieve or obtain a competitive advantage over its competitors. With soft 2001 and 2002 markets, organizations need to look for ways to cut costs strategically, and using e-tools is of paramount importance in support of a strategic sourcing process. For me, competitive advantage is having a strategic sourcing process that incorporates e-tools, which are important to support a well-defined strategic sourcing process.
Remember: The process should drive the tool; the tool shouldn't drive the process.
iSource: Do you think a lot of smaller suppliers that may not have the financial resources are being left out in the cold, though?
Lowery: This relates to the topic of IT spend. At this point in time, there are a lot of suppliers that aren't there and that haven't taken the time to get there. And, now that times are tough, they're not going to go out and spend that money. At a conference I attended, people were talking about how they were still on the old three-way match system because they just weren't going to ramp up that quickly.
At Dana, however, I'm looking for my suppliers to be able to do business electronically. That's what's going to take cost out of the supply chain. It's all about connectivity, not only with our customers, but also with our suppliers. One of the messages I'm going to send to my suppliers is that we want them to be connected with us. Not only do we want to communicate supplier balance scorecard information, but we also want to be able to conduct EDI [electronic data interchange] transactions through our portal.
iSource: Regarding a level playing field, a main concern with Covisint is that the preferred suppliers do not want their customer's business being put up for bid in an auction with a bunch of other suppliers. What are your thoughts on that, and how do you deal with that?
Lowery: You have to keep your suppliers honest. For example, you might have a supplier that brings engineering experience to the table that is really worth something. But, you conduct a competitive bidding event (CBE) and, suddenly, the supplier drops his or her price 10 to 15 percent. As a customer, I would feel slighted; I thought we had a partnership. If the supplier was able to come down 15 percent on bid day, the price should have been less prior to the event.
One way to keep suppliers honest is to utilize the new Six Sigma methodology. This approach focuses on process improvement by utilizing specified resources (from supplier and customer) to reduce cost in the supply chain. The thought process entails both the customer and supplier collaborating to eliminate non-value activities from the manufacturing or business process.
iSource: What about the ramifications of September 11? Crisis management is a big issue right now, as is inventory reduction. Are there any new ideas or initiatives that it brought on?
Lowery: Companies need to maintain the same course of strategy as it relates to inventory reduction, and I am specifically talking about September 11. Working capital will continue to be important for 2002, and inventory is a key component of working capital, so people will continue aggressive inventory reduction efforts. However, the question becomes how to reduce it because of this effect. I think September 11 actually affected every industry in some way, but as it relates to manufacturing, robust, nimble organizations know how to flex all facets of their operations. For example, most manufacturers know how to flex operations and disciplines, like scheduling and planning, to meet the demands of their customers. Companies must maintain their course of action as it relates to inventory, but adjust scheduling and purchasing practices to compensate for the occurrence on September 11. But realistically, manufacturing companies are forced into crisis management mode almost every week; they are putting out those types of fires all the time.
September 11 put everybody on a level playing field. Only if you had an overabundance of inventory did you have an advantage over your competitor. It will be natural for companies to adjust their scheduling practices to compensate for late deliveries due to border issues, etc. This change disrupts the sales and operations business model. However, nimble companies make the necessary adjustments to minimize non-value-added costs. Then, as business returns to normal, adjustments to sales and operations-planning business models should be made.